Productivity and Quality in Health Care: Evidence from the Dialysis Industry

We show that healthcare providers face a tradeoff between increasing the number of patients they treat and improving their quality of care. To measure the magnitude of this quality-quantity tradeoff, we estimate a model of dialysis provision that explicitly incorporates a center’s unobservable and endogenous choice of treatment quality while allowing for unobserved differences in productivity across centers. We find that a center that reduces its quality standards such that its expected rate of septic infections increases by 1 percentage point can increase its patient load by 1.6 percent, holding productivity, capital, and labor fixed; this corresponds to an elasticity of quantity with respect to quality of -0.2. Notably, our approach provides estimates of productivity that control for differences in quality, whereas traditional methods would misattribute lower-quality care to greater productivity.

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